Subjects: Management Science >> Enterprise Management submitted time 2023-12-19
Abstract： Internal control has been the focus of the corporate governance system since SOX. As an important environment for internal control, the effectiveness of the corporate governance system is fundamental to ensure the effectiveness of internal control. Existing research on internal control mainly reveals the positive consequences of high quality internal control, but pays insufficient attention to the causes of low (high) internal control, especially the lack of research from the perspective of the corporate governance system, which fails to answer the question of "how to improve the corporate governance mechanism in order to improve internal control or what kind of corporate governance mechanism reduces internal control".
The institutional design of independent directors aims to utilize their professional expertise (accounting, law, industry, etc.) to play a supervisory and advisory role. In the design of the corporate governance system, independent directors are governed by special committees of the board of directors, of which the audit committee requires a majority of independent directors and is convened by a sole director of finance and accounting. Existing research shows that, on the one hand, the professional characteristics of the audit committee play a positive role; on the other hand, the performance of independent directors is affected by social relations. China is a typical model of "relationship-based transactions". Under such an institutional background, relational transactions are a powerful tool to save transaction costs, but they may also form a "network of relationships" and influence individual behavior. This paper focuses on the question of whether the convenor of the audit committee, as an independent director, can play the role of "professional spillover" and have positive governance effects, or is affected by "relationship constraints" and unable to play the role of monitoring and advising. The quality of internal control is the starting point. Taking the quality of internal control as the starting point, if the audit committee convenor's concurrent service has a "professional spillover" effect, it should be able to observe that when the audit committee convenor concurrently serves on more committees, it will lead to a higher level of internal control; otherwise, it indicates that the performance of the audit committee convenor is subject to "relationship constraints".
Using the annual data of non-financial listed companies in Shanghai and Shenzhen from 2011 to 2021, the empirical test finds that the quality of internal control is lower when the audit committee convenor serves on more specialized committees. The empirical evidence supports the "relationship constraint" hypothesis. The results are robust to statistical tests such as the discussion of alternative explanations and reverse causality, and the use of an instrumental variable for the average number of full professors in regional colleges and universities. Mechanisms are analyzed at two levels: the existence of relational constraints and the mitigation mechanisms.
Overall, this paper chooses the unique corporate governance analysis perspective of audit committee convenor concurrent appointment to test the governance effectiveness of this internal concurrent appointment through its impact on internal control quality, and the study shows that this internal concurrent appointment is subject to relational constraints and fails to fulfill the expected governance role. This paper adds to the theoretical causes of low internal control quality in corporate governance, and at the practical level, it provides a reference for the current institutional reform of the participation of independent directors in decision-making and advisory roles.
Peer Review Status:
Awaiting Review
Subjects: Management Science >> Enterprise Management submitted time 2023-11-14
Abstract： Realizing the goal of "dual carbon" requires not only the call of macro policies, but also the response of micro enterprises. In this paper, we take SMEs as the research object, embed the relationship between government and enterprises in the research framework of "pressure and enterprise behavior", and study the influence of external pressure on enterprises' environmental responsibility, and the moderating role of the implicit contract between government and enterprises in the process. Using data from the 12th National Private Enterprise Survey (CPES), we find that: (1) external environmental pressure is an important motivation for firms to assume environmental responsibility; (2) the implicit contract between the government and the enterprise, represented by the government-enterprise relationship, in fact assumes the role of government regulation, which strengthens the facilitating effect of the external pressure on the environmental responsibility of the firms. Extended analyses show that: from the perspective of promoting environmental responsibility, whistle-blowing has a substitution relationship with external pressure, and whistle-blowing has a stronger disciplinary effect than fines; when entrepreneurs obtain government-enterprise relations with public interest, environmental responsibility under external pressure is less affected by the government-enterprise relations; when entrepreneurs perceive greater government intervention, environmental responsibility under external pressure is more affected by the implicit contract between the government and the enterprise. Theoretically, this paper also contributes to the study of the relationship between the government and the enterprise. This paper contributes to both the "pressure and enterprise behavior" and "government-enterprise relationship and enterprise behavior" literature, and provides reference for guiding enterprises to assume environmental responsibility in reality.
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